Ben Alarie - Tax-Free Savings Accounts
I've posted a new paper on SSRN that analyzes the new "tax-free savings accounts" that are soon to be available in Canada (they will be coming to a financial institution near you in January). You may recall having seen one (or more) of the now ubiquitous advertisements for the accounts. Here's the abstract of the paper:
Tax-free
savings accounts ("TFSAs") will be available in Canada in January 2009.
A TFSA is a "tax prepaid" or "yield-exempt" investment account that
does not provide any deduction for contributions and allows for
tax-free compounding of investment returns in addition to tax-free
withdrawals at any time. This article examines the theory surrounding
TFSAs, briefly outlines the empirical evidence from the UK and the US
with similar accounts, and identifies the consequences that are likely
to emerge with the advent of TFSAs in the existing Canadian tax system.
TFSAs can be expected to generate some modest new savings by Canadians
with low and middle incomes and to give rise to asset shifting from
taxable investments to TFSAs by those who have savings that are
currently held outside of tax-advantaged accounts. The analysis
suggests that the TFSA regime should probably be regarded ambivalently
from the perspectives of efficiency and equity on account of having a
small effect on savings and investment behaviour that will come at the
cost of significant forgone tax revenue.
The paper is entitled, Assessing Tax-Free Savings Accounts: Promises and Pressures. As this work is still preliminary, I welcome any comments or suggestions you may have.
On page 16, you are missing a word: "It is not hard to that here is a relevant.."
Posted by: Padraic | December 13, 2008 at 08:44 AM
Great abstract very informative and unbiased. This review should definitely be in the hands of more people. With your permission we would like to offer this report to our readers, please advise the reprint/republishing/ considerations etc.. Thank you.
Posted by: TF Savings | December 16, 2008 at 08:07 AM
Footnote 41 has an extra word "An income tax treats taxes ants..."
Posted by: Shaun | January 12, 2009 at 09:20 AM
Footnote 43 has a question mark that should be a period: "an additional tax on savings?".
Posted by: Shaun | January 12, 2009 at 09:22 AM
Two more:
Page 15: "Thus, tax prepaid accounts allow active investors to earn additional returns tax-free and compounding way within their accounts."
Footnote 93: "if they have earned the jackpot through a provincially-sanction lottery."
Great article. Now if only I could figure out how to earn super-normal returns...
Posted by: Shaun | January 12, 2009 at 10:23 AM